15 November 2019

Ever see those tiny houses on TV made from shipping containers or retrofitted from someone’s garage? You know, the ones that are charming, efficient and just so darn cute? Well, you could start to see more and more of them pop up in Kitchener very shortly.

Housing prices continue to rise year-over-year (and lately, month-over-month) in KW. We have low levels of inventory and still strong demand from buyers. Housing is simply becoming less and less affordable for many people. It appears this problem is happening in many cities in Ontario, so the government jumped in to help address the problem. 

This summer, the Provincial Government passed Bill 108, ‘More Homes, More Choice Act’ that amended the Additional Residential Units Policy to allow for up to a total of three residentialunits on a property. The new change allows for two residential units within a house and an additional residential unit ancillary to a house on a property. 

What does this look like? It could look like an extra unit in your basement, or upstairs AND a separate unit outside the home, which could be a retrofitted detached garage, an apartment above the garage or a new, purpose-built tiny home. Kitchener, being the progressive city it is, is one of the first cities in Ontario to jump on board with this new change and start the review process. This could be HUGE.

We’ll get into why this could be a game-changer for the city, but first, let’s go through why Kitchener is even considering this option.

Affordability – A Double Issue. We’ve been hearing this on the news and reading the headlines for years now and the problem just seems to be getting worse, at least locally in KW. We’re seeing lots of buyers come in from Toronto and the GTA because housing is just not affordable. The more buyers we’re seeing keeps pushing prices up. If people are lucky enough to be able to afford a home, they’re often asking mom and dad to help with down payments or co-sign on the mortgage. This new zoning change could allow for extra rental income to help with this cost.

Let’s take the average sale price of a detached house in Downtown Kitchener’s core in 2019 so far – just shy of $500,000 and see where the numbers take us:

10% down, 2.75% interest rate, 25-year amortization, and 5-year fixed term, you’d be looking at about $2,100/month just in mortgage payments

Now, what if you could buy that same property and put in $50,000 to add two extra units to the property? What would the numbers look like then?

Assuming you can roll that $50,000 into your $500,000 mortgage:

Your monthly mortgage would now be $2,300/month

Assuming you can rent each unit out for $1,000/month:

Your monthly mortgage is now: $2,300-$2,000 = $300/month (a decrease of almost 90%!)

Where can you live anywhere in Ontario (or Canada for that matter), in a highly desirable and fast-growing city for $300/month mortgage payment AND own the property? I doubt anywhere. 

Now affordability is a two-sided coin. These new zoning changes will allow for more buyers to afford a home, but also increase the units available to rent. The more units available to rent, the more affordable the rental rates become. We have a seriously low vacancy rate in KW and the trends are going such that CMHC expects the vacancy rates to continue to fall. This poses a huge problem for those who continue to be displaced because of developments but also those who just can’t keep up with a 16%/year increase in rental rates.  And while it would be nice to have your salary increase 16% year over year, this just isn’t happening. 

Age-In-Place & Multi-generational Homes.

We all know we have an aging demographic and long waitlists to get into senior communities. Splitting your property into two or three residential units can allow seniors to stay in their home and have a son/daughter/grandchild move into their own space to help when needed. Or, have a property where multi-generational families can purchase a home together for ease of looking after one another.   

Increase Density.

We’re seeing a lot of great development in Kitchener, including many high-rise buildings going up. These tiny homes are a way to increase density without losing the existing streetscapes of the current neighbourhood. 

What this Means.

This will be a game-changer for Kitchener; end-users and investors take note. 

That extra $2,000/month in rental income is roughly the equivalent of you qualifying for an $850,000 property – about 70% more than what you initially qualified for at $500,000. Looking at houses every day, I can assure you, going from a budget of $500,000 to $850,000 opens up close to endless possibilities for you if they are willing to sacrifice some of their space to make some additional rental income. And with a little additional work, those investors that were cash-flow negative can start to see much more promising returns before prices start jumping. 

This development could quickly increase the value of our homes, which is likely the largest asset we have and bring many more people to Kitchener. The more people, the more investments in our city. From employers to arts & culture, restaurants, shops, and more. 

The City still needs to approve the zoning changes and work out all the rulings (min. living space, setbacks, lot coverage ratios, parking, water/sewage requirements, etc.) but we’ll be keeping a close eye on it in 2020.

* Consult your mortgage specialist

*Often times, we get investors and buyers from out of town who are unfamiliar with Waterloo Region’s layout and differentiating cities. Kitchener is the only city within Waterloo Region currently looking at this as an option. If it gets approved, this new zoning change will apply to Kitchener only and not to those homes in Waterloo, Cambridge or the townships…at least not for now.